Multi-period DDM

[archived_user]

Hi, what is the value of the stock in this multi-year divi discount example?

• Last year’s dividend was $1.62.
• The dividend is expected to grow at 12% for three years.
• The growth rate of dividends after three years is expected to stabilize at 4%.
• The required return for Computech’s common stock is 15%

Thanks

 

[archived_user]

Y1=1.62 × 1.12/1.15=1.58
Y2=1.62×1.12^2/1.15^2=1.54
Y3=1.62×1.12^3/1.15^3=1.50
Y4=1.62×1.12^3×1.04/(0.15-0.04)/1.15^4=12.30
value=1.58+1.54+1.50+12.30=16.92

 

[archived_user]

I got $18.77
Y1=1.62 × 1.12/1.15=1.57
Y2=1.62×1.12^2/1.15^2=1.53
Y3=1.62×1.12^3/1.15^3=1.50
Y4=1.62×1.12^3×1.04=2.37
2.37/(.15-.04)=21.55 —> 21.55/1.12^3
value=1.57+1.54+1.50+14.17 = $18.77

 

[archived_user]

I got $18.77
Y1=1.62 × 1.12/1.15=1.57
Y2=1.62×1.12^2/1.15^2=1.53
Y3=1.62×1.12^3/1.15^3=1.50
Y4=1.62×1.12^3×1.04=2.37
2.37/(.15-.04)=21.55 —> 21.55/1.12^3
value=1.57+1.54+1.50+14.17 = $18.77

 

[archived_user]

krokodilizm wrote: Y1=1.62 × 1.12/1.15=1.58
Y2=1.62×1.12^2/1.15^2=1.54
Y3=1.62×1.12^3/1.15^3=1.50
Y4=1.62×1.12^3×1.04/(0.15-0.04)/1.15^43=12.3014.15
value=1.58+1.54+1.50+12.3014.15=16.9218.77

FTFY